Chapter 2 : Economics

Vocabulary flashcards generated directly from the lecture slides on business economics, macroeconomics, monetary/fiscal policy, market structures, and key economic indicators.

Economy

Financial and social system of how resources flow through society.

Economics

Study of the choices made by people, companies, and governments to allocate society’s resources.

Macroeconomics

Study of a country’s overall economic dynamics.

Microeconomics

Study of smaller economic units.

Subprime mortgage loans

Loans granted to individuals with poor credit histories.

Collateralized debt obligations (CDO)

Bundled mortgage-backed securities.

Troubled Assets Relief Program (TARP)

An economic bailout plan passed by Congress that provided loan funds to banks and the auto industry, such as GM and Chrysler.

American Recovery and Reinvestment Act

Fiscal policy measure passed to cut taxes, build infrastructure, and invest in green energy.

Fiscal Policy

Government efforts to influence the economy through taxation and spending.

Debt ceiling

Maximum amount Congress lets the government borrow.

Fiscal cliff

Across-the-board spending cuts and sharp tax hikes intended to decrease the U.S. budget deficit.

Budget surplus

Overage that occurs when revenue is higher than expenses over a given period of time.

Budget deficit

Shortfall that occurs when expenses are higher than revenue over a given period of time.

Federal debt

Sum of all the money that the federal government has borrowed over the years and not yet repaid.

Monetary Policy

Federal Reserve decisions that shape the economy by influencing interest rates and the money supply.

Money

Anything generally accepted as a medium of exchange, a measure of value, or a means of payment.

M1 money supply

Money supply category that includes all currency plus checking accounts and traveler’s checks.

M2 money supply

Money supply category that includes all M1 money supply plus most saving accounts, money market accounts, and certificates of deposit.

Open market operations

Federal Reserve function of buying and selling government securities; the Fed buys securities to put money into the economy and sells to take it out.

Discount rate

Interest rate the Federal Reserve charges when loaning money to banks.

Reserve requirement

Rule set by the Federal Reserve specifying the minimum amount of reserves a bank is required to hold.

Economic system

A structure for allocating limited resources.

Capitalism

An economic system—also known as private enterprise or the free market system—based on private ownership, economic freedom, and fair competition.

Degrees of Competition

The spectrum of market structures ranging from high competition/low concentration to low competition/high concentration.

Pure Competition

Market structure with many competitors selling virtually identical products.

Monopolistic Competition

Market structure with many competitors selling differentiated products.

Oligopoly

Market structure with a handful of competitors selling products that can be similar or different.

Monopoly

Market structure with a single producer dominating the industry, leaving no room for competitors.

Natural monopoly

A monopoly that arises when a single supplier is more efficient than multiple competing ones.

Supply

The quantity of products that producers are willing to offer for sale at different market prices.

Supply curve

The graphed relationship between price and quantity from a supplier standpoint.

Demand

The quantity of products that consumers are willing to buy at different market prices.

Demand curve

The graphed relationship between price and quantity from a customer demand standpoint.

Equilibrium price

Price point at which the quantity demanded of a product equals the quantity supplied.

Socialism

Planned economic system where government owns and operates key enterprises that directly affect public welfare.

Communism

Planned economic system featuring public ownership of all enterprises under the direction of a strong central government.

Mixed economies

Economic systems that combine elements of planned and market-based economic systems.

Privatization

Process of converting government-owned businesses to private ownership.

Nationalization

Process of converting privately owned businesses to government ownership.

Gross domestic product (GDP)

Total value of all final goods and services produced within a nation’s physical boundaries over a given period of time.

Business Cycle

The periodic contraction and expansion of economic output (GDP) over time.

Contraction

Period of economic downturn in the business cycle.

Recession

Period of economic downturn marked by decreased GDP for two consecutive quarters.

Depression

A deep, long-lasting recession.

Recovery

Period of rising economic growth and employment following a contraction.

Expansion

Period of robust economic growth and high employment.

Unemployment rate

Percentage of people in the labor force over age 16 who do not have jobs and are actively seeking employment.

Frictional unemployment

Type of unemployment associated with workers who are in between jobs or finding better jobs.

Seasonal unemployment

Job loss related to the specific time of year.

Cyclical unemployment

Layoffs that occur specifically during economic recessions.

Structural unemployment

Longer-term job loss that occurs when workers' skills are no longer relevant to current job market demand.

Inflation

Period of rising average prices across an economy.

Hyperinflation

Extreme inflation characterized by an average monthly inflation rate greater than 50%.

Disinflation

Period of slowing average price increases.

Deflation

Period of falling average prices.

Consumer price index (CPI)

Price index evaluating the change in the weighted-average price of goods and services that an average consumer buys each month.

Producer price index (PPI)

Price index evaluating the change over time in weighted-average wholesale prices.

Productivity

The basic relationship between the production of goods and services (output) and the resources needed to produce them (input), expressed as $\text{Productivity} = \frac{\text{Output}}{\text{Input}}$.